Corporate Finance Division
Transportation Company Venture Capital
Software may be eating the world, but some industries have been off the menu. Now, international shipping’s time has come. The UN estimates at least 90% of the world’s physical goods end up in a shipping container before arriving at their destinations. Until recently, shippers have conducted much of their business as they have for decades: using spreadsheets, emails, and phone calls.
Those days are drawing to a close. Last year, venture investors backed more than 245 startups in shipping and supply-chain management, a record number worth at least $4 billion, reports business intelligence firm CB Insights.
While domestic logistics is being rapidly transformed by robotic warehouses, autonomous trucks, and on-demand services such as Uber, DoorDash, and Amazon Prime, the unglamorous world of international freight has remained largely a rolodex affair. A single shipping transaction may involve 28 different entities including customs, terminals, forwarders and carriers, reports Lloyd’s List, a marine intelligence firm. Many of these interactions still happen by email, phone and manual data entry, generating reams of paperwork. Startups spy an opportunity.
The industry, long fixated on building bigger ships, is now turning its attention to the back office and customer experience. But designing new technology has proved challenging. In 2011, DHL spent $1 billion modernizing its own freight forwarding software, a failed effort that had to be written off four years later. Such efforts are nothing new. Lloyd’s describes half a dozen attempts to digitize the industry that have foundered since 1998 because carriers never bought into the idea that they had to change their business processes, not just technology.
Silicon Valley investors are betting startups will solve this problem. Companies like Haven, Turvo, and Flexport argue their cloud-based solutions will displace shipping and logistics companies’ SAP and Oracle software the same way Salesforce has grown to dominate sales and marketing solutions.
If they’re right, they could fundamentally accelerate global trade. The shipping container is a case study. The standardized metal box helped send costs down and global trade soaring by 700% over 20 years, researchers estimate (pdf), more than any international trade agreement. Within a few decades, the number of new products in countries like the US had quadrupled. Just as importantly, manufacturers whose only advantage was proximity to ports or customers were no longer protected: Malaysia could suddenly compete effectively with New York.
Software may remove massive delays and inefficiencies in an industry moving 180 million containers around the globe every year. If so, more than a trillion dollars in cheaper goods will arrive faster at ports around the world.
Fostering Growth without Diluting Equity:
For Transportation companies at critical stages of development, debt can serve as a key financing option to foster growth, with minimal dilution of equity ownership. At Synergy Capital Markets, not only do we understand the industries of our portfolio Transportation companies, but we also understand the growth process - and occasionally the growing pains - they undergo.
When venture debt is used appropriately, we believe entrepreneurs gain the following benefits:
Able to raise capital in a way that benefits the team and the business as a result of the greater flexibility offered by venture debt than traditional forms of debt financing
Have more time between equity rounds to build the business and achieve critical milestones, which creates potential for greater valuation
Retain a larger ownership stake in the company prior to an IPO or other liquidity event
Achieving milestones quickly in many cases also means reaching the IPO stage more rapidly